US prosecutors in Manhattan are investigating Michael Pearson, the former CEO of Valeant Pharmaceuticals, in connection with fraud, according to Bloomberg News.
The stock is down more than 10% on the news.
Pearson helmed Valeant during its rise to become one of Wall Street’s darling stocks. He used a combination of serial acquisitions and drug price hikes to achieve that.
Then, last October, accusations of accounting malfeasance combined with government scrutiny over the company’s drug price hikes brought the company to its knees. Valeant’s stock price is down around 90% since last year’s peak.
Prosecutors are also looking into Robert Schiller, the company’s former CFO, according to Bloomberg. Schiller was the interim CEO while Pearson was on medical leave from December 2015 through February 2016. He testified before Congress when Valeant executives were called in February to answer for drug price hikes.
This is mostly related to Philidor, the pharmacy attached to Valeant that was revealed in the fallout of the accusations. The government is investigating whether Valeant controlled Philidor to funnel drugs through insureres that wouldn’t normally pay for them.
Valeant insisted that the two companies were separately operated, and that it didn’t own the company outright. That’s despite the fact that Valeant had purchased the option to acquire Philidor for free for $100 million (which was why, it argued, it folded Philidor’s revenue into Valeant’s). Employees also worked at both companies under different names, according to a Wall Street Journal report.
According to a separate suit filed by Valeant investor T. Rowe Price, Valeant senior management and board members – including the entire audit committee on one occasion – visited Philidor. It also alleges that emails, as well as transcripts and phone calls, show that senior management and board members knew about Valeant folding Philidor into its accounting.
We should also note that Pearson still consults for Valeant as part of his separation agreement with the company. That agreement includes a “non-disparagement” clause, as well as the following:
- A $9 million severance. “An annual bonus in respect of the 2016 fiscal year pro-rated to reflect the portion of the 2016 fiscal year elapsed prior to the Termination Date.” Full benefits for himself and his dependents for two years. Office space for two years. “In exchange for the Services performed hereunder, Valeant agrees to pay Mr. Pearson a fee of (i) $83,333 for each month (pro-rated for partial months) that Services are performed through the end of 2016, and (ii) $15,000 for each month (pro-rated for partial months) that Services are performed after 2016 and during the Consulting Period.” Valeant will also pay for any travel expenses incurred by Pearson related to the company during his consulting period.
- Markets Insider